Inheriting a home is a pretty sweet experience, yet bitter at the same time… You are left with great property value you can use to improve your life, but you are still mourning the loss of a loved one. So you may ask yourself at this point “what are the tax consequences when selling a house I inherited ?” The tax laws have been designed in a way they will not add any more burden unto you upon inheriting the property. This implies that the financial consequences are less daunting than what you would expect, which is good news for you. Calculation of basis In order to comprehend how you’ll be taxed having inherited a home, you need to know how basis is calculated. “Basis” means an asset’s cost for tax purposes. To determine whether you have a profit or less when you sell an asset, you subtract its basis from the sale price. If you have a positive number, you have a gain. If you have a negative number, you have a loss. When a person dies, the value or basis of their property is increased to the market value as at the time of their death. This is called the “stepped-up basis.” For instance, if a person purchased a home 20 years ago for $25,000 but it was worth $100,000 at the time of their death, that property would be valued at the latter amount for the purpose of calculating capital gains. Redfin has additional resources that may be helpful in understanding this piece. Taxation of gains/losses Capital gains or losses refer to what you earn from selling property that you use for either personal or investment purposes. Such can be houses, furniture and many more things. If you decide to sell an inherited home, that sale is regarded as capital gain or loss for the purpose of income tax. In most cases, for you to qualify for lower rates of long-term capital gains, you are required to have held that property for at least a year. However long the duration you have been in ownership of an inherited home, any gain or loss will still be treated as long-term. Reporting the sale You might have to go through the probate process if your relative died without a will. Once the court authorizes you to proceed, you may ready the house for sale. If there are any other individuals involved in the inheritance, you should first agree with each other on that decision. Upon selling an inherited home, you have to report it for the income tax purposes. You should first calculate your capital gain or loss. This is done by subtracting the basis from the sale amount. You should then report that amount to the necessary tax authorities. In Summary Having an inherited home can be stressful given the fact that you have new property to take care of and pay taxes for it at the same time. If you want to know more about the tax consequences of selling an inherited house, we would be happy to discuss it with you in more detail. In addition, you might consider selling the property to an investor for a fast, easy and private sale. Visit our About page or How it Works to learn more.
Category: Short Sale Information
What is a short sale and how does it benefit you in the Bay Area California?
What is a short sale and how does it benefit you here in the Bay Area? If you’re thinking that question about yourself… great question! In this article we’ll dive into that question so you as a the Bay Area California home owner can tell what your options are during foreclosure or just if your home mortgage is underwater. What is a Short Sale and How Does it Benefit You? A short sale can be a smart way to mitigate foreclosure (here’s a great definition of what a foreclosure is in case you’re not sure) on a mortgage, although they can be difficult to attain in today’s market, they often prove to be a simpler way to resolve any debt left over from a loan. Short sales were really common in the market a couple years back when the flood of foreclosures hit the the Bay Area market… but as foreclosures have slowed down and home values have climbed back up a bit… lenders are a little less likely to offer a short sale as an option as they used to be (but they are still doing a lot of them!). Here are a few reasons you may want to consider short sale on your the Bay Area home You Avoid Foreclosure And The Harmful Effects Of It The best benefit of short sale is that you avoid a foreclosure on your home. Your mortgage lender accepts less than what is owed on your mortgage, leaving you without the debt that you cannot afford. Foreclosure can lead to all kinds of financial problems, starting with the inability to obtain a new loan for a home because a foreclosure stays on your credit record usually for up to 7 years. Even renting will become more difficult as your credit score would be affected, and you often have to disclose a foreclosure on a rental application. Foreclosures can also last a long time (up to 7 years as mentioned above), making you wait years to even qualify for a new mortgage. Credit Worries With a foreclosure, you face all kinds of ramifications with your credit. Buying a car and renting a house may be impossible through the normal bank loan routes. If you work with money at your job you could even face termination if your employer puts a lot of stock in that kind of thing (most employers won’t but it has been done before). A short sale relieves the debt that is leftover from what is owed on the mortgage, letting both the bank and the seller move on. A short sale is also easier on your credit score, which can allow a homeowner the ability to recover in the long run. Your credit report will only show a pre-foreclosure status, which reduces your credit rating minimally compared to a foreclosure. Buying a New House A foreclosure can last for a long time, making it impossible to purchase a mortgage again for up to 7 years. Short sales offer a little more flexibility for the seller, allowing new home applications only 2 years after the filing depending on the bank. It also makes a mortgage lender more likely to approve your loan than if you had a full foreclosure, getting you back into a home faster. Again, this all depends on the actual bank / lender you’re working with… so if they’re giving you a hard time a year or two after a short sale… shop around and find another bank to work with. Usually No Fees Involved One potential benefit of the short sale is there are usually no fees associated with the process from the bank. The banks just want to get the note off of their books… and if it can be proven that your house is “underwater” (you owe more than your house is worth)… and you’re at the risk of walking away from the house… the bank may rather work out a short sale instead of going through a costly foreclosure. With a foreclosure, your mortgage lender may tack on extra fees that only make the damage worse. Some real estate consultants may charge a fee for helping facilitate the foreclosure with your bank… so check with them before you enlist a real estate agent or firm in helping you with this. Our company, Skye Homes may be able to guide you in the right direction on how to give yourself the best shot at a bank approving a short sale with your Bay Area area house… so connect with us by calling or shoot an email to us through our contact page here. Getting a Short Sale – What You May Need To Provide You will have to provide the bank with proof of being unable to pay your mortgage payments. This can be difficult and is best resolved by finding a good real estate attorney in your area that has experience dealing in this type of law. If you don’t know who to contact or where to turn to see if a short sale may be a good option for you… get a hold of us. We won’t charge a thing to discuss your situation with you and let you know your options. And we can even give you guidance and pointers at absolutely no cost or obligation. Sometimes we’re actually able to do the work for you or even buy the house from you to get you out from under that mortgage… so that may be a viable option for you. We buy the Bay Area houses and we work with home sellers like yourself who are having troubles getting out of your house the traditional way… or who can’t (or don’t want to) go the usual route of listing with an agent. Get a hold of us anytime to discuss your situation. We’re here for you! Or, if you want to see what we can offer on your house… click the link below and fill out the form on the next… Continue reading What is a short sale and how does it benefit you in the Bay Area California?